BONDS, Investment.— Investment bonds are usually classified under the following gen eral heads : Government, Municipal, Railroad, Public Utility, Industrial.
Government As indicated by the name, a government bond is a bond issued by a government in exchange for money borrowed. For the prompt payment of its bonds a govern ment pledges its full faith and credit, and such a bond usually has back of it the unlimited power of the government to levy taxes to pro vide funds for the payment of principal and interest.
Municipal Bonds.— Under the heading Municipal bonds there are usually grouped not only the bonds of cities but also those of other political divisions, such as counties, school dis tricts, townships, etc., and even including bonds of the States themselves. There are sometimes issued by cities, towns, etc., what are known as special assessment bonds payable-by their terms solely from the levy of special taxes on certain property benefited by the improvement for which the bonds were issued, but generally speaking Municipal bonds are issued as the direct obligation of the entire municipality and all of the property within the municipality is subject to the levy of sufficient taxes to pay prin cipal and interest of the bonds. In nearly all of the States of the United States there are constitutional limitations governing the amount of bonds which may be issued by the cities, counties, etc., within the State, the limitations being usually a certain percentage of the as sessed valuation of taxable property, but it is sometimes provided that the limitations of debt shall not apply to bonds issued by a city for the construction or purchase of a support ing property, for example, a water system, docks, etc. In addition to the constitutional or statutory limitations of the amount of indebted ness which may be incurred, the issuance of Municipal bonds is further safeguarded in most of the States by laws which carefully pre scribe the purposes for which they may be issued as well as the steps which must be taken by the prOperly constituted authorities prelim inary to and in connection with the issuance of the bonds, in most cases, the holding of an election and the levying of a tax to pro vide for payment of principal and interest and advertisement of the bonds for some specified time. Municipal bonds are free from the open.
ation of the Federal Income Tax La*, and in many States Municipal bonds, issued within the State, are free from personal property tax.
Railroad Bonds.— Railroad bonds consti tute the best known and Most widely distributed type of bond issued by corporations. Practi cally all of the railroad systems in the United States have bonds outstanding, and through the medium of their bond issues they obtain a large part of the money used in the construction of their properties. These bonds are held in large amounts by savings banks, national banks, trust companies, insurance companies and private in vestors. In addition to their bonds secured by mortgage on the railroad property; some of the roads have outstanding a type of obligation known as Equipment bonds secured on certain of their cars or locomotives. An issue of Equipment bonds is usually paid off in annual or semi-annual instalments covering a .period of from I0 to 20 years.
Public Utility.— During the past 25 years in which there has been such a marked develop ment and expansion of the properties supplying street railway, gas, electric light and telephone service, the bonds of companies supplying these public necessities have become widely known as a proper channel for conservative investment. A large number of States have had for some years public service commissions which not only supervise the general operation of public utili ties in the matter of the character of service, rates, etc., but also have authority to pass upon the issuance of securities by such companies. In States having public service commissions with ,jurisdiction extending to the issuance of securities, the public utility companies may issue bonds only in such amounts and for such purposes and at such prices as the commission may approve.